The continuing tightness in the liquidity position renders any exposure to securities at the short end unattractive. ``With no significant upside in paise terms likely at this end, we cut down our exposure here,'' the weekly report stated.

The Ways and Means Advance (WMA) for the week ending January 12, stood at Rs 2,836 crore. Considering the net coupon payments of around Rs 700 crore in the period January 13 to January 26 and auction inflows of Rs 4,000 crore, any pressure on the government finance is unlikely. Also there is little likelihood of any fresh gilt issuance this week, said the report.It has been a one-way movement for gilt prices over the last few weeks.

Building up on the gains notched up earlier, prices firmed up further on the back of increased expectations of cuts in the bank rate and the cash reserve ratio (CRR) and restoration of refinance limits to the banks.

The securities at the long-end went up by 100-150 paise over the course of the week, with the substantial gains been made in the second half. The yield on the benchmark nine and a half-year security GoI 11.30% 2010 dipped by 17 basis points to 10.47%. The extent of the bullishness can be gauged by the fact that despite call rates continuing to remain firm and the Reserve Bank of India (RBI) steadily supplying fresh paper, yield levels have been sharply falling. Apart from the expectations of an easier monetary policy going forward, the strength in the rupee has also boosted the sentiment in the bond markets. On the back of steady portfolio inflows - FII inflows for January alone have been around $625 miilion - the rupee has gained 27 paise since start of the month and is currently trading around 46.40 against the dollar.